THE PEOPLE'S MONEY AND THEIR CREDIT
Howe, Fred C.
The People's Money and Their Credit HOW THEY ARE USED AND ABUSED By FRED C. HOWE Executive Secretary of the All-American Farmer-Labor Coo perative Commission, Machinists' Building Washington, D....
...The $10,000 he borrowed is now a bank deposit, the same as the $100 of cash deposited by a workingman out of his monthly wages...
...When he redeposited the loan in the bank, he deposited, in a sense, his own wealth with the bank...
...The bank guarantees, impliedly at least, to the thousands of depositors who do business with it, that if they want a loan they can have it...
...We all assume that the bank creates or makes credit...
...Most bank deposits are not money deposits at all...
...Yet in 1919 all the money in the Federal Reserve Banks and in the hands of all other banks was but $8,197,500,000...
...A bank is under a moral obiigation to ,sc tin deposits of the people for the individual an<I collective benefit of the people who deposit them...
...To this extent, at least, the control of credit is a monopoly...
...It decides for us whether our efforts shall go into the production of more wealth or less wealth...
...Smith really borrowed a portion of his own wealth from the bank...
...If there is a banking loss, if the bank makes a bad guess as to the solvency of a borrower, the stockholders have to pay before the depositors lose...
...In the first instance, the bank is a means of making money for a few stockholders...
...5) There is another thing...
...He immediately redeposits in the bank the $10,000 that he has borrowed...
...For all of the credit that the bank can loan, except such as is invested in the capital stock, is the credit of the people of the community...
...they decide whether it shall go to production of wealth at all, or to speculation and stock gambling...
...It is fatal for the nation, in present circumstances, to keep more than three-quarters of a million strong men from producing, to feed end to clothe so many idlers...
...He borrowed his own wealth, and in a sense, the wealth of John Smith...
...More than that, credit shapes the nature of our social and industrial development...
...It is impossible for life to go without credit...
...This is why sums are available for big leans...
...Quite obviously the banks do not lend money...
...Credit is not so simple...
...HEREIN IS THE VITAL DIFFERENCE BETWEEN PROFIT-MAKING BANKING AND CO-OPERATIVE SERVICE BANKING: THE PRIVATE BANKS USE THEIR RESOURCES WHERE THEY WILL AND FOR WHAT THEY WILL...
...Another receives a piano for a thousand dollars' worth of merchandise...
...The bank alone has the power to receive deposits and to lend other people's credit...
...The bank has power to inflate credit, and in fact to create credit, because of the fact that the bank alone can lend in excess, and far in excess, of the actual amount of money it has on hand...
...They decide whether it shall go to the farmers and cattle raisers of the West or to the builders of railroads in China...
...Now, when John Smith borrowed $10,000, ho gave to the bank one of two things, probably both of them: he gave his promissory note and either a mortgage, warehouse receipt, bill of lading, or shares of stocks or bonds, or collateral of some kind...
...IT USES IT FOR THE PRODUCTION OF WEALTH...
...Copies of the proposed banking measure and descriptive literature can be secured by writing to Fred C. Howe, Executive Secretary, Machinists Building, Washington, D. C. It is hoped that this or a similar measure can be introduced and passed by a large number of our states at the present sessions of their legislatures.—Editor's Note...
...Now, the mortgage, bill of lading, ox corporation security left as collateral was an evidence of some kind of wealth...
...Bankers say it is not good business to limit the way they may use the deposits entrusted to them...
...Borrow Others' Wealth THE same is true of every borrower...
...They lend the credit of the people...
...Obviously, it could not lend money...
...Moreover, those who control credit decide for us where our credit shall be used...
...Then Robinson borrowed $10,000...
...TOO MANY IDLE Conscription is a terrible thing for the individual...
...Deposits in Banks DEPOSITS are either private or public...
...5) Now, loans are possible because a great many people make deposits, while only a few people make loans...
...For individual credit is a very different thing than banking credit...
...The loans and discounts and investments of the banks in 1919 amounted to $37,-580,905,000.00...
...They enable us to test the accuracy of cur con-elusions...
...And so it goes on until the bank has about $100 in loans and investments outstanding to about $18 in actual cash on reserve...
...It determines what kind of an industrial life we shall have...
...4) From this it follows that the people have created legal agencies and have given them power and privileges for aiding in the production of wealth, for serving the people in the community, for lending the credit of the community back to the community that creates it...
...The working resources of a bank consists of two things: first, its capital stock and sulplus...
...This is done thousands of times daily...
...Peter Robinson now goes to the bank and borrows $10,000...
...The note may have been indorsed...
...It would not be possible for everybody to borrow at the same time...
...The People's Money and Their Credit HOW THEY ARE USED AND ABUSED By FRED C. HOWE Executive Secretary of the All-American Farmer-Labor Coo perative Commission, Machinists' Building Washington, D. C. Part I The Banking and Credit Committee of the All-American Cooperative Commission was organized to promote cooperative banking by farmers and workers...
...The first cooperative bank established is that of the Brotherhood of Locomotive Engineers at Cleveland, Ohio...
...The great bulk of its resources belong to the people of the country...
...As a result of these transactions, one man receives a tractor for a thousand bushels of wheat...
...Surpluses are usually earnings which have not been distributed as dividends.] Second, the deposits placed with the bank by the people...
...He had it changed in form...
...We have made the control of credit a profit-making agency, like any other purely private business, despite the fact that the ability of all the rest of us to make wealth and enjoy wealth is dependent upon the will, the whim, or the caprice of the class to whom we have entrusted the control of credit...
...2) We have given the absolute and exclusive control of commercial credit to the bankers...
...Even if he gave an unsecured note, he put up his expected wealth with the bank...
...If the mystery of it is removed, anyone can understand credit...
...8) The bank does business with other people's money...
...He borrows the $10,000 just deposited by John Smith...
...That obligation is not expressed in law...
...What does it consist of...
...It deals in the people's wealth...
...Every economic and industrial activity depends upon credit...
...The bank is a public, not a private agency...
...The service it renders consists in changing wealth in form, in place, or in possession...
...That is why we have permitted banks to be created...
...They lend the people's labor...
...It has been given them by law...
...The Committee has drafted a model cooperative banking measure for adoption by our states with a descriptive draft of its purposes...
...The bank is a public bookkeeper and an insurance agency...
...The banks therefore do business with other people's money...
...It insures that a man is solvent...
...In the other, it is a means of making wealth for those who unite their savings and deposits in a common co-operative undertaking...
...Thus, the loans, investments, and discounts made by the banks amounted to nearly twelve times the amount of money held by the banks, and to five times the total amount of all the money there was in the country...
...Do they lend their own credit, or do they lend the credit of the people...
...Without credit the modern world would not go on for a day...
...It backs up this insurance with the capital stock that the stockholders have subscribed, for the capital stock is the guarantee of the good faith, the intelligence, and the honesty of the stockholders...
...They are the proceeds of loans made in this way by borrowers...
...They pay little or no interest for it: and then charge the people who have deposited it a larger interest when they come to make a loan...
...They come from individuals or from the government...
...Only a bank can be a depository of public funds...
...So is the credit extended by an insurance company, a merchant, or a mortgage loan association...
...According to the report of the Comptroller of the Currency for 1919, the total of capital stock invested by the share-holders in the 81,618 banks in the country amounted to $2,568,500,000...
...The question is, whose credit do they lend...
...These constitute the resources of the bank...
...while all the money of all kinds in the country—in the United States Treasury, in the banks, and in the pockets of the people, was $7,518,800,000.00...
...There would not be enough credit to go around...
...He pledged the credit and good name he held in the community—the belief that he would produce wealth in some form or other to repay the loan...
...THEIR PRIMARY AND ALMOST EXCLUSIVE INTEREST IS THE MAKING OF MONEY...
...They even lend the wealth that is to be produced by the labor of men in the future...
...It cannot exist otherwise...
...The $13 is used to pay checks or to satisfy small demands...
...They are merely bookkeeping entries...
...1) In the first place, credit is the most important agency in our lives...
...We assume that it gives credit...
...Yet credit, too, is easily understood...
...it is a privilege, a privilege conferred by the people themselves on their own creations to enable the community and the people to develop their powers and resources...
...It determines what kind of wealth shall be produced as well...
...Were there no wealth in the hands of the people, and no wealth to be produced, there would be no credit...
...They are credit deposits...
...Robinson also deposits his $10,000...
...The power the bankers enjoy is not a natural right...
...The banks lend the people's wealth...
...THE CO-OPERATIVE BANK, ON THE OTHER HAND, USES ITS RESOURCES EXCLUSIVELY FOR THE BENEFIT OF THE MEMBERS, FOR THE STOCKHOLDERS AND DEPOSITORS...
...THERE are a number of rather elemental and simple facts that should be established before passing to the consideration of the uses and abuses of banking and credit...
...How is it created...
...Certainly the people, who create fourteen-fifteenths of the total banking resources of the country, have a moral right, and they should have a kgal right, to insist that their money should be used, not to make as much money for the bankers as the bankers demand, but to render as much service and to create as much wealth for the community pe is possible...
...It should be remembered that the bank does not lend money...
...It does business with other people's deposits...
...AND IT USES IT ALMOST EXCLUSIVELY AT HOME, IN THE COMMUNITY THAT CREATES IT...
...It shares its earnings with depositors...
...In addition, all of the people make deposits all the year around, while only a few make loans at certain periods of the year...
...In other words, for every dollar invested by the stockholders, there was $14 invested by the people...
...The above facts cannot be disputed, and everybody can understand them...
...It is also promoting credit unions or people's banks of which there are already several hundred in this country, operated by workers and fanners...
...It opened for business two and a half months ago and already has nearly $4,000,000 of deposits...
...He, too, put up securities of some kind or another...
...This power has been given the banks by the act of the people...
...They really lend the farms, the houses, the factories, the machinery, the goods, the merchandise in the stores...
...They lend credit...
...The borrower rarely takes the money away...
...At the same time the total amount of deposits in the banks, owned by the people, amounted to $86,743,700,00.00...
...They all put up their wealth, and they all borrow back their own or other people's wealth...
...Thus the bank deals in the people's credit...
...They are made up of very small sums...
...The bank collects interest on all these loans, and it keeps the cash reserve required by law in the Federal Reserve Bank of the district...
...Yet the fact is that the credit and the bank loans to borrowers, like the money it holds from depositors, is other people's credit...
...They change its form...
...3) The bank does business with the people's money...
...It again is borrowed by someone else, and redeposited...
...Life itself is dependent upon it (2) We have turned over the control of credit to private agencies created by ourselves, and have permitted them to decide for us how it shall be used and what forms of wealth shall be produced...
...It exists by law...
...We see the difference in the results of these two types of banks when we compare 1he kind and nature of loans made by a profit-making bank with the kind and nature of loans made by the thousands of little -o-operative banks that are found all over Europe and in at least three of the states of America...
...They undertake that obligation...
...4) Thus far banking is simple enough...
...They alone have the legal power to erect credit on a structure of money reserves...
...John Smith goes to the bank and borrows $10,000...
...Whether the statement attributed to the elder Morgan to the effect that "If you give me control of the finances of the country, I care not who or what party makes the laws," is correct of itself or not, the fact itself is true...
...If the banking transaction was a proper banking transaction, all persons who borrowed at the bank either borrowed their own wealth or some other person's wealth...
...The bank really lends the people's credit...
...The hinks exist for that purpose...
...It insures depositors that their money will bo paid back...
...This is of the essence of banking...
...They lend the individual credit of their depositors and the wealth owned by the borrowers as well...
...This is important...
...Conclusions are Made FROM the foregoing it seems clear: (1) Credit is the most important agency in our lives...
...Borrowing of Money LET us see how this is possible...
...For whoever controls credit controls life...
...There was actual property back of it...
Vol. 13 • March 1921 • No. 3
